SIMPLE with a 401(k)

My client is employed by ABC, Inc. He is a participant in ABC’s 401(k), contributing $10K/year. The client also leases his farm land to people who raise wheat and give him a cut of the profits. The farm will pay him $30K this year. I say he can establish a SIMPLE IRA for his farm business. His CPA says that his participation in the 401(k) prevents him from establishing the SIMPLE for his separate enterprise, the farm. Can someone straighten us out?



He could still establish the SIMPLE IRA for his farm business as it would be the only plan established for the business, but since he is already contributing 10k to his employer’s 401k plan, his total contribution to a SIMPLE IRA is limited to the lesser of 10,500 or (15,500 less 10,000) 5,500 (per Sec 402g) unless he qualifies for catch up contributions. The 5,500 looks like it may also be close to what he could contribute using a SEP IRA for the business.



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